Post on 12-Nov-2014
description
Lessons from a Large US Apartment Operator
(AIMCO Chief Property Operations Officer 2002-2008)
And
US Multifamily Investment Opportunities
(President, The Sanctuary Group, LLC 10/08-)
Jeffrey Adler, President, CEO The Sanctuary Group, LLC
www.sanctuarygroup.us.comjeff.adler@sanctuarygroup.us.com
Agenda
1. Lessons from a Large Operator
2. Raising Revenue in Regulatory Constrained Markets
3. Understanding Product Type Differences
4. US Multifamily Investment
1. Lessons from a Large Operator
• Apartments are a consumer service business trapped in a capital intensive industry
• Residents expect CONSISTENCY from professionally managed firms- which can only be delivered through process mgmt
• Apartments are an EMOTIONAL service, with untapped potential– Staff attitude and camaraderie are essential– Segmentation, customization, and personalization can be tackled after consistency has
been achieved
• Transparency and Visibility are Critical- Existing and New customers, expenses, people, capital spend
• Resident Screening & Selection is the Moral Imperative of Property Mgmt
4
History of Apartment Investment & Management Company (“AIMCO”)
Initial Public Offering in 1994 with $315 million gross asset value Rapid growth followed by an integration period.
Doubled in size every 18 months from 1994 – 2002 through several large portfolio acquisitions. Rationalized portfolio and operations, selling more than 350 properties worth over $4.5 billion from
2001 – 2006 and substantially exiting the third-party property management business.
Built operating infrastructure to take advantage of scale and support growth.
Operating platform stabilized by 2006, positioning AIMCO for growth- decline in values since 1Q07 has led to a rapid sell-off as stock price has fallen faster than private market value of US real estate
Gross Book Value of Real Estate
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
$ in
mill
ions
Number of Aimco Employees
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
5
Background & Context – How Aimco Creates Value
Aimco Value Drivers Customer-Centric
Property Operations
Redevelopment/ Entitlements
Tax Credit Transactions
Finance Strategy
Joint Ventures
The primary focus is creating value through the management and redevelopment of high land value assets in good locations. This implies serving customers w/different value propositions.
Customer Segment 1
Customer Segment 3
Customer Segment 2
Customer Segment 1Customer Segment 2
Customer Segment 3
6
AIMCO Operations Philosophy
The apartment management industry has been undergoing a transformation from a cottage industry to a scale driven, professional business system that is customer-centric, driven by rising customer expectations.
AIMCO Operations has been at the forefront of this transformation, led by a team that is grounded in other geographically distributed consumer businesses.
AIMCO has refocused its Operational Philosophy into five major Components: Customer Driven - based on a solid foundation of consumer research, we focus on
the entire customer experience, measure it, and seek to differentiate ourselves beyond the physical quality of the property, in order to achieve a relative price premium.
Forward Looking & Data Driven - we measure, in detail, to manage our four pipelines 1) revenue, 2) expense, 3) people, and 4) capital spend.
Scale Driven - we seek to leverage our size into scale driven advantages, and to transform site operations from mini transaction processing centers to places of personalized experiences.
People Driven - selection, hiring, on-boarding, training, development, performance management, and succession planning is itself a set of processes that are developed, measured, and managed.
Product Driven - curb appeal, unit turn quality standards, capital investment, financial management, construction services, and the redevelopment process are all areas that receive intense focus to ensure that we are competitive on the basis of product quality and amenities.
7
AIMCO’s Conventional Strategy Roadmap
Revenue
Expense,Capital &Service Mgt
Style/Design & Community Building
Customer Information as Competitive Advantage
Turn Production Vendor/Expense
Management Customer Service
Measurement Product Lines
(Student)
Revenue growth through customer experience, style and product differentiation
Increasing emphasis on Team-member processes and systems
Web Enablement Ramp up of
Redevelopment & Capital Programs
Disney Training – Customer Experience
2004/5
2006/7
2007/8
>2008
Resident quality
Mtkg and Media Customer
Response (phone and email)
Sales (New & Renewal)
Revenue Management
Continue migration of admin tasks offsite
Refinement of emotion-based customer segments
On-Site experience
Media Property
Websites Call Center Revenue Mgmt Customer
Underwriting Retention People Services Capital Invest
Resident Quality is the Moral Imperative-Selection of Neighbors is the Unique functionof a management company
8
A Fragmented Market – the AIMCO Target Bulls eye
• The market is fragmented and AIMCO operates in a fraction of the market.
Tapestry Segments% Who Rent:
Rentals(Fragmented Market)
AIMCO Target
Global Roots = 60-80%
Solo Acts = 60-70%
Upscale Avenues = 30-60%
House
Townhome
Condo -Management
Company
Condo-Landlord
Sublet
2-3 Flat
Apartment Building withProfessional Management
Company
We occupy only 1-2% of the “management company” rental market
• 300 million people In the US• 100 million US households• 30 million rental units, (including
condos, flats, individual LL etc.)• 30-40% are professional
management =9-12 millionAimco with 125,000 current units = <1%
30-40% of available market
9
Consumer Housing Choices
Professional Management
CompanyLandlord Ownership
Positive
Consistent standards & security
Access to “whole team of people” 24/7
Fast/responsive (know building and have the appropriate resources)
Public company (meets public scrutiny)
Can escalate issues if necessary
Can negotiate cost/rentLandlord takes extra/personal
care (updates) Inside has characterDeal with one personLandlord knows/chooses me
EquityChose neighbors (more
scrutiny)Free to personalize to tasteTake pride in my space
Negative
“Cookie cutter.” No character/ personalization
Profit orientedRisk of many neighborsCan I be myself?
• Landlord is too close for comfort, would rather complain to larger company
• Landlord can be greedy• Less consistent maintenance
(polarized- they are either on top of you or take a long time)
• Economic/market fluctuation• Maintenance/incidentals can
be a headache and costly• Risk of community issues• Escalating Property Taxes
The components of strategy must enhance positives, while mitigating negatives as much as possible
30-40% of available market
60-70% of available market
“Perception” of uniqueness and personalization
10
The Market Value EquationCUSTOMER PRIORITIES
Rational Drivers Emotional Drivers
Service
Security
Location Respect/Pride & Care
PriceFriendly Community/
Value System
Amenities Updates
11
The Market Value Equation Consumers Priorities are Rational Drivers + Emotional Drivers
Respect/Pride & CareDimensions
• Pride in work• Staff enjoys job, they WANT to help me
• Appreciation/humility• You are our responsibility/pride, Residents are #1
priority over prospects….”how can we help you?” • 2 way communication
• No surprises, makes me feel valued• Reach out and ask/listen to needs
• Empathy• Visible touch-point (family, connection, feels like home)• Consistency (change is very disruptive)
Friendly Community/Value System • Friendly neighbors
• Not friends, but friendly. “A smile goes a long way”• Shared Values/Community value system (among both
residents and staff)
Updates• FUNCTIONAL aspect of Updates for Residents: “Justifies rent
increases”• EMOTIONAL aspect of Updates for Residents: “Shows me you
care as much as I do, and you care about me, feels like a hug, and keep me updated with the latest styles/trends”
Respect/Pride & CareDimensions
• Pride in work• Staff enjoys job, they WANT to help me
• Appreciation/humility• You are our responsibility/pride, Residents are #1
priority over prospects….”how can we help you?” • 2 way communication
• No surprises, makes me feel valued• Reach out and ask/listen to needs
• Empathy• Visible touch-point (family, connection, feels like home)• Consistency (change is very disruptive)
Friendly Community/Value System • Friendly neighbors
• Not friends, but friendly. “A smile goes a long way”• Shared Values/Community value system (among both
residents and staff)
Updates• FUNCTIONAL aspect of Updates for Residents: “Justifies rent
increases”• EMOTIONAL aspect of Updates for Residents: “Shows me you
care as much as I do, and you care about me, feels like a hug, and keep me updated with the latest styles/trends”
Emotional Drivers
Location Suburban
• Green/nature/parks, close to malls/shops/restaurants• Interstate highways, public transportation (commuting =
currency)• Schools
Urban• Schools• Walk to public transportation • Convenience stores/restaurants
Metro• Walk to public transportation, walk to convenience stores,
restaurants, culture/events
Price • Washer/dryer (#1)• Big closets/storage• Wood floors• Kitchen/living area open floor plan• Price Range• View/ceiling to floor windows
Amenities• Gym (24/7)• “At my convenience” and “On my own time”• Amenity value beyond Gym alone (pool, enclosed community
center)
Location Suburban
• Green/nature/parks, close to malls/shops/restaurants• Interstate highways, public transportation (commuting =
currency)• Schools
Urban• Schools• Walk to public transportation • Convenience stores/restaurants
Metro• Walk to public transportation, walk to convenience stores,
restaurants, culture/events
Price • Washer/dryer (#1)• Big closets/storage• Wood floors• Kitchen/living area open floor plan• Price Range• View/ceiling to floor windows
Amenities• Gym (24/7)• “At my convenience” and “On my own time”• Amenity value beyond Gym alone (pool, enclosed community
center)
Rational Drivers
Fear/Risk:
Consumers have fear/risk aboutService and Security, these 2 drivers are the cost of entry (visual proof of guarantee needed)
Service - Clean/spotless with cues - Fast/responsive (24 hrs), Fixed the first time (lobby/main entrance, carpet/floors/paint) - Reliable/dependable (know maintenance staff
by name)
Service - Clean/spotless with cues - Fast/responsive (24 hrs), Fixed the first time (lobby/main entrance, carpet/floors/paint) - Reliable/dependable (know maintenance staff
by name)
Security- Window locks, buzz in doors, gate/lighting, guard - Security you can see- Neighborhood - “People around and watching over me”
- Screening (background checks/high rent weeds out)
Security- Window locks, buzz in doors, gate/lighting, guard - Security you can see- Neighborhood - “People around and watching over me”
- Screening (background checks/high rent weeds out)
Emotion:Pride & Care
12
Village Collection
Sub SegmentsCultural PrideDay-to-Day PrideFamily Restart
Ultimate GoalSafe Haven “Village” for my family. Value for a full life within a
community (a Village).
Consumer DemographicsSinglesCouplesFamilies
Financial LeverageCash yield through longer duration
(retention) and lower operating costs.
13
Towne CollectionSub Segments
ReprieveReprieve Plus Connection
Ultimate GoalA Peaceful Reprieve.Value for their money, a home
without the house (trees, landscape, park, playground feels like backyard) because “I’m/We’re sacrificing for now.”
Consumer DemographicsYoung Professionals (Singles and
Couples)FamiliesActive AdultsStudents/Roommates
Financial LeverageScale through Net Operating
Income (NOI) and Controllable Operating Expenses (COE) optimization.
14
Metropolitan Collection
Sub SegmentsFiscally Minded, “PRIDE”“Wow” Factor, “FUN”
Ultimate GoalResort Living.Better quality of life (resort, things
to do nearby, restaurants, nightlife).
Consumer DemographicsPRIDE: Young ProfessionalsFUN: Financially Secure
Consumers, Artists, Singles
Financial LeverageRevenue growth through selective
investment for rent increase.
15
Improvement to Resident Quality
AIMCO’s first step to improve operations began with improving resident quality.
Neighbors are an essential ingredient to successful communities. Employ an unyielding system relying on financial stability to judge
resident quality. Results from Improving Resident Quality2003 Current
Annualized Skip/Eviction % 9-10% 6-7%
Accounts Receivable > 12.0% < 2.5%
Bad Debt 3.0% < 1.0%
91.0%
92.0%
93.0%
94.0%
95.0%
2004 2005 2006 YTD 2007
Aimco Average Physical Occupancy
16
Operational Excellence
AIMCO continues to build its platform Processes and Standards
Data-driven people and culture with the systems and tools to accomplish as much.
“Automate the Routine, Humanize the Exception” Improving productivity, the hiring profile, and in the end the customer experience. Many opportunities exist to leverage supplier “eco-systems” for smaller companies
2006/7 Accomplishments 2008
Electronic Procurement Internet Customer Experience 60% of demand web generated
Electronic Revenue Management
Electronic Lease Documentation
Operating Standards Accounts Payable
Centralization
43% of leases from web >50% growth in web demand 23% of apps on line and growing On-line leasing live in Atl/Orl
17
How Customers Search
• Our research validated a need for a differentiated web experience, which drove our investment in a new property website platform– Usage of ILS is very high: 76%– Usage of Search Engines is also high: 71%
– 68% started their search online– After online search,
• 40% - word of mouth• 32% printed resources• 31% phone calls
– Community web site: 67%– Craig’s List web site: 43%
– 3 clicks/3 bricks: Consumers average 3 web site and 3 community visits
– The web experience must be “real”, as if I was there, no glamour views that may disappoint
18
Efficiencies from ScalabilityInternal Scale vs. Vendor Scale
Transformation of communities from mini-transaction processing centers to a focus on revenue enhancing customer relationships- 2/3 of Front office time spent on administrative tasks
Community Support Centers in 2008 handle e-procurement and other administrative tasks
Centralized procurement increases standardization across Aimco Call Center to manage all leasing inquiries to Aimco
Missed calls have declined from 25% to <5% Media purchasing and development has been centralized
The national media group executes all large scale web and print buys
Goal is to eliminate the back office from Aimco’s leasing centers
Timeline for Move to Off-Site Responsibility
2005200520052005
20062006
20072007
payment, service in place
Transaction Category
Incoming leasing callsIncoming leasing e-mailsOutbound Appointment Confirmation Utility Bill paymentsElectronic procurementElectronic revenue managementElectronic Lease documentation Centralized accounts payableWeb Customer Self-Service
19
Utilization of Technological SystemsBuild vs. Buy Decisions
PROFIT Revenue Management System is a heavily data-driven tool used to accurately price rents through:
Forecasting inventory based on historical season trends. Upcoming lease expirations for the specific property. Forecasting of market demand metrics, including Aimco’s own lease pipeline
(inquiries, visits, etc.).
2007 8America Comes Home to Aimco
PROFIT (Pricing Revenue Optimization and Forecast Information Tools) – AIMCO’s Revenue Management System
• Historical detail to the lease level is also available for the Property and ROC teams. (each dot is a lease)Aimco has strategically invested in technological systems which have SIGNIFICANTLY IMPROVED operating efficiency
20
Highest Emphasis Placed on Customer Experience
We involve our residents in improving the customer experience through several feedback systems.
On-line surveys are offered to residents at: 1) move-in; 2) two days after move-in; 3) 120 days after move-in 4) completion of each service request (Customer Experience Measurement).
Results are immediately available for staff review and impact the variable compensation program.
Retention has improved 3% from ’03 to ’08 A key attribute is TRANSPARENCY of the Customer Experience Net Promoter Score is our primary customer experience metric
Customer Experience Measurement
Metric 2005 2006 2007 2008
Net Promoter Score 18% 18% 31% 38%
Office Courtesy 90% 90% 93% 94%
Maintenance Overall Rating 82% 86% 90%
Customer Average Duration (months) 16 17 17 19
Willingness to Renew 70% 75% 75% 93%
Move-in Defect Rate 14% 8% 11% 11%
Unit Turn Cycle Time 34 days 15 days 15 15
Unit Availability 40% 90% >90% >90%
21
The Team Member Experience – Extending the Operating Platform
Team Member Engagement- Reduced turnover by 8%
•Selection- Behavior based hiring screens deployed mid year ‘07
•HR People Pipeline Mgmt System- START- deployed early ‘07
•Training/Development
• Continued CM training program
• Learning Management system deployed early ‘06
• New long-term training relationship with the Disney Institute
• Retention programs
• “Aiming for the Stars”, Aimco Cares, Aimco Cares4U, College Scholarships, Active Duty Service Members, Tuition Reimbursement, Scorecard payments to 63% of properties in ’06, 50% in ‘07
• Performance mgmt, career paths, succession planning programs.
22
Employees are at the Heart of Quality Customer Service
“Hire for attitude, train for skill” Aimco has developed rigorous training programs to ensure our people deliver the
highest level of customer service. Approximately 5,000 Regional and site team members have completed an
average of 10 courses per person year to date. Aimco has improved team member satisfaction through specific initiatives including
pay for performance, quarterly CEO/Executive Town Halls, active succession planning, and numerous training opportunities.
Indicator 2005 2007 Increase
EngagementJob Satisfaction, Retention,Recommending Aimco as a place to work
57% 65% 8%
On the JobTraining, Role Clarity, Information, Resources, Using Skills & Abilities
81% 88% 7%
Work Life 57% 78% 21%
Compensation (Pay & Benefits) 57% 67% 10%
Values (Living Up To) Integrity, Respect , Teamwork, Customer,
Team Member Focus, Performance66% 75% 9%
Values (Believe In) 97% 99% 2%
23
Employees are at the Heart of Quality Customer Service
“Hire for attitude, train for skill” Aimco has developed rigorous training programs to ensure our people deliver the
highest level of customer service. Approximately 5,000 Regional and site team members have completed an
average of 10 courses per person year to date. Aimco has improved team member satisfaction through specific initiatives including
pay for performance, quarterly CEO/Executive Town Halls, active succession planning, and numerous training opportunities.
Indicator 2005 2007 Increase
EngagementJob Satisfaction, Retention,Recommending Aimco as a place to work
57% 65% 8%
On the JobTraining, Role Clarity, Information, Resources, Using Skills & Abilities
81% 88% 7%
Work Life 57% 78% 21%
Compensation (Pay & Benefits) 57% 67% 10%
Values (Living Up To) Integrity, Respect , Teamwork, Customer,
Team Member Focus, Performance66% 75% 9%
Values (Believe In) 97% 99% 2%
24
Team Member Experience- CM Training Results (at 120 days post hire vs. prior year)
Measure Rating Comments
1 Sales Effectiveness
Strong improvement
New CM sales performance-
10.7% point increase
3.2% improvement vs. month average
2 Office Courtesy
Improvement Office Courtesy scores
10.5% improvement to above 93%
3 Employee Retention
Strong Improvement
Employee turnover improvement
+30% vs. baseline
4 FSG Tickets Strong Improvement
Reductions of FOCUS tickets vs. benchmark improvement of 2.9 tickets per 100 units
25
Results of the Operating Improvements
Aimco versus REIS Occupancy & Rent
$700
$720
$740
$760
$780
$800
$820
$840
Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07
Aver
age
Ren
t pe
r O
cc. Uni
t
82.0%
84.0%
86.0%
88.0%
90.0%
92.0%
94.0%
96.0%
98.0%
Occ
upan
cy
Aimco Rent REIS Rent Aimco Occ. REIS Occ.
Source: REIS.Used with permission from Reis.com
The operating improvements are further evidenced through above-market rents and occupancies.
2. Raising Revenue in Rent Constrained Markets• Ontario rent regulations are similar to several US cities (San
Francisco, Northern NJ, Alexandria VA). You are not alone!
• Utility Rebilling- a form of “Unbundling” and Risk Transfer– Does result in about a 30% reduction in usage – very “Green” – Direct Bill vs. RUBS based on physical plant and age– Electric, Heat (Oil, Nat Gas, Electric), Air Conditioning, Hot Water,
Trash and Pest Control have all been “unbudled”– Vendors in US are ISTA, NWP, RealPage– Must be included in the rent statement to be truly effective, does
require regulatory authorization, sometime regulation– Represents $1,000/unit/yr change or 10% change in total expenses– Success depends on customer type—seniors will pay up for stability
2. Raising Revenue in Rent Constrained Markets• More Unbundling- Represents 4% of Rental Income
– Comes with Danger of Being “nickled and dimed to death”• Effective with Cost Conscious Consumers- backfires in luxury/senior segments
– Renter’s Insurance- required liability insurance – Surety Bond vs. Security Deposit– Fee Income- application fees, upfront admin fees, late charges, lease
cancellation fees, month to month fees, transfer fees, lost key fees, pet rent, pet deposits, parking costs,
• Ancillary Revenues- 1% Opportunity & Growing– Communications- Internet, Phone/Wireless, Television– Vending– Laundry and/or Washer/Dryer Rentals
2. Raising Revenue in Rent Constrained Markets• Revenue Management Systems- the Biggest Opportunity
– Still only operative on 10% of US Apartment Rentals– Lift of 2-5% documented with available vendor systems– Requires a compatible Property Mgmt Operating System– Requires a documented Revenue Management Process
• Centralized Staff of some sort• Collaborative decision making—but OFF SITE• Data Driven based upon historic conversion ratios• Requires interaction of internet media sources• Assumes most demand is sensitive to price—but that’s exactly what good
segmentation should reduce!
– Enables price segmentation as to move-in date, lease duration, and unit amenities
– Next Wave will layer in resident credit stability
3. US Major Apartment Product Types
• Urban- Brownstone, Mid and High Rise– Long Useful lives among major building systems– High land values based on density, difficulty to replace– Expensive/difficult to Renovate Common area elements- elevators, HVAC,
Plumbing– The Neighborhood is the lifestyle amenity
• Suburban- Garden Apartments- predominate US Housing Apartment Style given reduced US population density– Clusters of 10-12 unit apartment buildings- 300 unit avg size– Easier to bite off Cap Ex- roofing, siding, HVAC units, hot water– Dependent on the automobile– Growing trend is along metro rail lines, universities, hospitals– Many Common areas amenities- club houses, pools, etc.
4.US Multifamily Investment
2009 APARTMENT TRENDS
A National Multifamily Market Overview
Market Divergence Continues
Fundamentals softening short-term (2009-10)
Construction starts are decreasing Future supply / demand favors appreciation Apartments remain a preferred investment
Split between: Family firms and Institutional Capital
Market Divergence Continues
• Short-term transactional value Debt and equity more expensive Investors are fearful and conservative Unemployment is damaging fundamentals Expectation of “discounted / distressed
pricing” by institutional investors
-4%
0%
4%
8%
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
*
Employment Growth
Y-O
-Y P
erce
nt
Ch
ang
e
Sources: Marcus & Millichap Research Services, Blue Chip, Economy.com, Global Insight
Economic Weakness Expected Through Q3-2009 Risk Levels Remain Elevated
-10%
-5%
0%
5%
10%
15%
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2009
*
GDP Growth
An
nu
aliz
ed G
row
th
*Forecast Assumes No Additional Major Shocks
Long-Term Avg.
LT Avg. 3Q2008-Q22009 = -3.1%
2009 Annual = -2.2%
2010 Annual = 2.5%
Text Boxes Below = Peak-to-Trough During Contraction Period
08-09: -5.9M
01-03: -2.7M81-82:
-2.8M
90-91: -1.6M
70: -1.0M74-75: -2.2M
U.S. Employment Losses Have Reached Extreme Levels in Recent Months
-750
-500
-250
0
250
500
00 01 02 03 04 05 06 07 08 09*
*Through February 2009Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics
Monthly Absolute ChangeMay: -137,000June: -161,000July: -128,000August: -175,000September: -321,000October: -380,000November: -597,000December: -681,000January 09: -655,000February 09: -651,000
Th
ou
san
ds
of
Job
s
Retail Sales Continue to Decline Despite Relief from High Energy Prices
-10%
-5%
0%
5%
10%
00 01 02 03 04 05 06 07 08 09*
$0
$30
$60
$90
$120Retail Sales Oil Prices
Cru
de O
il (Price p
er Barrel)
Ret
ail S
ales
(Y
-O-Y
Ch
ang
e)
* Retail Sales YOY as of February, Oil as of March 18 th
Sources: Marcus & Millichap Research Services, Economy.com
The Fed and Treasury Have Become Aggressive – Helped by Falling Inflation
0%
2%
4%
6%
8%
00 01 02 03 04 05 06 07 08 09
0%
2%
4%
6%
8%
Fed Funds Rate Ten-Year Treasury Core Inflation
Fed
Fu
nd
s an
d T
en-Y
ear
Rat
es
Co
re Inflatio
n (Y
-O-Y
Ch
ang
e)
* Ten-Year/Fed Funds through March, Core Inflation through FebruarySources: Marcus & Millichap Research Services, BLS, Federal Reserve Board
*
0
4
8
12
16
20
01 02 03 04 05 06 07 08 09*
Single-Family Condo
* Through FebruarySources: Marcus & Millichap Research Services, National Association of REALTORS®
Y-O-Y Change
-1%
17%
Nu
mb
er o
f M
on
ths
Housing Inventory Overhang Indicates
Further Weakness (months of supply)
U.S. Existing Single-Family Home Trends
$0
$100
$200
$300
$400
U.S. Northeast Midwest South West
1990-2007 2008 2009*
Med
ian
Ho
me
Pri
ce (
000s
)
Sources: Marcus & Millichap Research Services, Economy.com, National Association of REALTORS ®
Change: ’02 to ’Peak: 34% 49% 21% 23% 51%Change: Peak to Present -22% -5% -15% -16% -38%
* Through February
Y-O-Y Feb. 2009 Employment RankingTop 10 & Bottom 10 Markets
Top 10Markets
Y-O-YPercent Change
Oklahoma City 0.5%
Austin 0.1%
San Antonio -0.1%
Washington D.C. -0.1%
Houston -0.3%
Dallas/Ft. Worth -1.1%
Kansas City -1.3%
Boston -1.5%
Columbus -1.6%
New Haven/Fairfield Cty. -1.6%
United States -3.0%
Bottom 10Markets
Y-O-YPercent Change
Fort Lauderdale -4.2%
Atlanta -4.4%
Las Vegas -4.5%
Orange County -4.7%
Orlando -5.0%
Sacramento -5.2%
Charlotte -5.5%
Inland Empire -6.3%
Phoenix -7.3%
Detroit -7.4%
United States -3.0%
Sources: Marcus & Millichap Research Services, BLS
Notice of Default RankingTop 10 & Bottom 10 Markets Past 12 Months vs. Previous 12 Months
Top 10Markets
Y-O-YPercent Change
Denver -12%
Oklahoma City -4%
Boulder -2%
St. Louis -1%
Memphis 11%
Anchorage 17%
Albuquerque 19%
Sacramento 22%
New York/NNJ 25%
Santa Barbara 26%
U.S. Average 39%
Bottom 10Markets
Y-O-YPercent Change
Oakland 39%
Inland Empire 41%
Bakersfield 42%
San Francisco 42%
Los Angeles 46%
Orange County 52%
San Jose 60%
Las Vegas 84%
Portland 86%
Honolulu 176%
U.S. Average 39%
* 12 months ending in FebruarySources: Marcus & Millichap Research Services, DataQuick Information Systems
Apartment Vacancy Ranking (2008)Top 10 & Bottom 10 Markets
Top 10Markets
2008Vacancy
BpsChange
Indianapolis 7.6% -70
Palm Beach 7.6% -40
Milwaukee 3.7% -40
Cincinnati 6.7% -30
San Francisco 3.6% -30
Minneapolis 4.3% 20
New York 2.3% 20
Oakland-East Bay 5.3% 20
San Diego 3.9% 20
Boston 6.0% 30
United States 6.7% 90
Bottom 10Markets
2008Vacancy
BpsChange
San Jose 5.2% 130
Las Vegas 7.7% 160
Jacksonville 11.6% 170
Tampa 8.6% 170
Atlanta 10.2% 200
Charlotte 8.0% 200
San Antonio 8.7% 210
Orlando 9.7% 250
Phoenix 10.9% 260
Tucson 11.2% 300
United States 6.7% 90
Sources: Marcus & Millichap Research Services, Reis
Apartment Vacancy Ranking for 2009*Top 10 & Bottom 10 Markets
Top 10Markets
2009*Vacancy
New York 3.6%
Milwaukee 4.4%
San Diego 4.4%
San Francisco 4.6%
New Jersey 4.8%
New Haven-Fairfield Co. 5.2%
Minneapolis 5.4%
Los Angeles 5.7%
San Jose 5.9%
Oakland-East Bay 6.1%
U.S. Average 7.7%
Bottom 10Markets
2009*Vacancy
Charlotte 9.8%
San Antonio 10.0%
Tampa-St. Petersburg 10.4%
Austin 10.5%
Houston 10.9%
Atlanta 11.1%
Orlando 11.1%
Phoenix 12.6%
Jacksonville 12.7%
Tucson 13.3%
U.S. Average 7.7%
* ForecastSources: Marcus & Millichap Research Services, Reis
-4%
0%
4%
8%
12%
96 97 98 99 00 01 02 03 04 05 06 07 08 09*
Asking Rent Effective Rent
Apartment Rent Growth
Sources: Marcus & Millichap Research Services, Reis* Forecast
Y-o
-Y P
erce
nt
Ch
ang
e
Apartment Effective Rent Ranking (2008)Top 10 & Bottom 10 Markets
Top 10Markets
2008Eff. Rent
%Change
Seattle-Tacoma $958 4.9%
Oklahoma City $519 4.6%
Houston $715 4.4%
Austin $783 3.8%
San Francisco $1,827 3.6%
San Diego $1,303 3.4%
Louisville $618 3.3%
Washington D.C. $1,307 3.3%
Oakland-East Bay $1,332 3.2%
Boston $1,651 3.1%
United States $995 2.1%
Bottom 10Markets
2008Eff. Rent
%Change
New Haven-Fairfield $1,536 0.6%
New York $2,801 0.6%
Sacramento $921 0.4%
Jacksonville $757 0.1%
Detroit $768 -0.4%
Phoenix $710 -0.4%
Fort Lauderdale $1,050 -0.6%
Inland Empire $1,018 -0.7%
Palm Beach $1,040 -0.8%
Miami $1,041 -2.0%
United States $995 2.1%
Sources: Marcus & Millichap Research Services, Reis
0
100
200
300
400
500
0
400
800
1,200
1,600
2,000Multi-Family Single-Family
Construction Starts Declining
Sources: Marcus & Millichap Research Services, U.S. Census Bureau
Mu
lti-
Fam
ily S
tart
s (S
AA
R, i
n t
ho
usa
nd
s)
Sin
gle-F
amily S
tarts (S
AA
R, in
tho
usan
ds)
60%
63%
66%
69%
72%
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010*
20
25
30
35
40
Homeownership Rate Renter Households
* ForecastSources: Marcus & Millichap Research Services, U.S. Census Bureau
Reversal in Home Ownership Rate Points to Increase in Renter Households
Ho
meo
wn
ersh
ip R
ate
Nu
mb
er of H
ou
seho
ld (m
illion
s)
“Shadow” Rentals a SignificantFactor in Rising Vacancies
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08*
30%
35%
40%
45%
50%
55%
2+ Unit Structure 1-Unit Structure
1-Unit as % of Total
Un
its
(in
000
s)
1-Un
it Stru
cture as %
of To
tal
Sources: Marcus & Millichap Research Services, U.S. Census Bureau* As of 3Q
Fannie Mae Composite Rates
0
100
200
300
400
0%
2%
4%
6%
8%Apartment Spreads 10-Yr. Treasury
All-In Rate**
* Through Feb 13, 2009**10-Year Treasury Yield Plus Average Conduit Spread Sources: Marcus & Millichap Research Services, Marcus & Millichap Capital Corp.
Ave
rag
e C
on
du
it S
pre
ad (
Lar
ge
Lo
an) 10-Y
r. Treasury an
d A
ll-In R
ate
U.S. Commercial Mortgage Backed Securities (CMBS) Issuance:
2004-2007 Vintage at Highest Risk Level
$48.7
$74.4
$52.1
$77.8$93.1
$169.2
$205.6
$230.2
$12.1
$0
$50
$100
$150
$200
$250
2000 2001 2002 2003 2004 2005 2006 2007 2008
U.S. CMBS
CM
BS
Issu
ance
(b
illio
ns)
Sources: Marcus & Millichap Research Services, Commercial Mortgage Alert, MBA
Apartment Investment Trends Dollar Volume by Price Category
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
$0
$30
$60
$90
$120
00 01 02 03 04 05 06 07 08
To
tal
Do
lla
r V
olu
me
($
bil
)
$1M - $9.99M $10M - $19.99M $20M+
$104 Billion$100 Billion
$45 Billion
Excludes Archstone Privatization
$85 Billion
Commercial Mortgage Delinquency Rates by Group
0.0%
0.5%
1.0%
1.5%
2.0%
CMBS (30+ days and REO) Life Companies (60+ days)Fannie Mae* (60+ days) Freddie Mac (60+ days)Banks & Thrifts (90+ days)
Del
inq
uen
cy R
ates
Delinquency rates at the end of each periodSources: Marcus & Millichap Research Services, Mortgage Bankers Association
Total CMBS Outstanding: $799.7 billion
Sources: Marcus & Millichap Research Services, MBA
Office30.2%
Multifamily15.6%
Retail29.5%
Hotel9.5%
Industrial5.1%
Self-Storage
1.8%
Healthcare0.6%
Other7.7%
• By Property Types:• Office 30.2%• Multifamily 15.6%• Retail 29.5%• Industrial 5.1% • Hotel 9.5%• Self-Storage 1.8% • Healthcare 0.6%• Other 7.7%
Apartment Sales Trends Average Price per Unit vs. Average Cap Rate
$0
$30
$60
$90
$120
01 02 03 04 05 06 07 08 09*
5%
6%
7%
8%
9%Avg. Price per Unit Average Cap Rate
Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
Sales $1 million and greater
Avg
. Pri
ce p
er U
nit
(00
0s)
Avg
. Cap
Rate
* 1Q Estimate
5%
6%
7%
8%
9%Primary Secondary Tertiary
Ave
rag
e C
ap R
ate
Sales $5 million and greaterSources: Marcus & Millichap Research Services, Real Capital Analytics
Re-Pricing of Risk TrendsBy Market Quality
12 – Month Cap Rate Adjustment Matrix *
Primary
Secondary
Tertiary
Class “A” Class “B” Class “C”
.65 1.00 1.25
1.00 1.25 1.50
1.50 2.001.25
* Change in cap rates last 15 months
12 – Month Pricing Adjustment Matrix
Primary
Secondary
Tertiary
Class “A” Class “B” Class “C”
-12% -17% -20%
-16% -21% -24%
-26% -30%-22%
Base = 5.00 / 5.50 5.50 / 6.25 6.00 / 6.75
2009 Commentary
Capital markets remain fractured and expensive
Investor demand tempered, motivated by anticipated discounts
Vacancy rate approaches 9% (+2%) Effective rents erode due to concessions Velocity remains low during 2009 Distressed asset sales escalate in 3rd / 4th Qtrs Cap rates continue to increase 50 bps
4.US Multifamily Investment
2009 APARTMENT TRENDS
THE CASE FOR OPTIMISM
* ForecastSources: Marcus & Millichap Research Services, Economy.com
-10%
-5%
0%
5%
10%
1990-95 1995-00 2000-05 2005-10* 2010-15*
Ages 20-24 Ages 25-29 Ages 30-34
Ch
ang
e in
Po
pu
lati
on
Echo Boomer DemandSupports Appreciation
6.5 MillionIncrease
U.S. Population Trends Favorable ForRental Market (Projected 20-34 Year Old)
54,000
58,000
62,000
66,000
70,000
20-3
4 Y
r O
ld P
op
ula
tio
n (
000s
)
Sources: Marcus & Millichap Research Services, U.S. Census Bureau
0.0
0.5
1.0
1.5
2.0
80 85 90 95 00 05 10* 15*
* ForecastSources: Marcus & Millichap Research Services, Economy.com
Nu
mb
er o
f In
div
idu
als
(mill
ion
s)
6.4 millionincrease
Demand From ImmigrationSupports Appreciation
Summary
Apartments are a Consumer Business as well as a Financial One
Value to Consumers Can be Unbundled Successfully
Apartments are an Attractive Investment in the US (and Canada!).